Istanbul Finance Centre law has been published on today’s Turkish Official Gazette to make Istanbul an international finance centre (hereinafter will be abbreviated as “IFM”).

The general concept of law emphasizes that at present there is an increase in global financial mobility and the bulk of capital flow is redistributed. During this transformation period, the IFM aims to assemble all the financial institutions in a single venue considered amongst this is a wide range of institutions such as banks, capital markets institutions, participation capital companies, financial investment, and portfolio management companies along with insurance companies.

Istanbul is urged to become a safe harbour as one of the leading centres of the global trade due to its proximity to Europe, the middle East and Russia, and the devastating effects caused by the pandemic on global supply chains. To attain such a goal within international trade, sustainable and participating approaches covering all financial services will be embraced and incentivized.

The IFM intends to focus on strategic sub-sectors such as banking, insurance, green finance, financial technologies, and participating finance in addition, aiming to support portfolio management, trust management, project finance, fund management, and reinsurance companies. This will happen in accordance with the international finance services sector in line with worldwide best practices. Additionally, with the help of consultancy, information technologies and financial technology companies supporting financial service activities it is intended to establish a wide ecosystem within the region.

In the law, aiming at a competitive IFM, certain discounts, exemptions, and other tax advantages are regulated. Deviating from real sector investments, in the law, incentive mechanisms determined in this context are limited with discount, exemptions, and tax advantages like its international references. Certain incentives to attract qualified human resources have been suggested.

The law envisages an IFM spread over 3,4 million square meters with a multi-layered and functioning structure, where realization of a single manageable facility is envisaged to provide management, lease, security, maintenance, and cleaning services along with services to meet the daily needs of approx. 100.000 employees and visitors to ensure a transparent, effective, and predictable management organisation. Further information below will point out the law includes regulations determining the assignment of an operating company, which for a certain period will be authorized to ensure the provision of these services.

The IFM will be structured as two sections including office space where financial institutions will be operating from and premises outside of this consisting of commercial and social units where employees will be able to operate from. To benefit from discounts, exemptions, and other tax advantages a participant certificate should be obtained for the office space from where financial services will be provided. On the other hand, to benefit from regulations to attract qualified human resources, to be situated in the office space to obtain a participant certificate is sufficient.

The law consists of 12 articles obviously signalling for future regulation with more detailed provisions.

Scope of the Law

In the definitions section of the law, financial services are defined by specifically referring to the activities, services, and transactions considered according to the following Turkish laws:

• Protection of the Value of the Turkish Currency.
• Private Pension and Savings Investment System.
• Banking Law.
• Bank Cards and Credit Cards Law.
• Insurance Law.
• Financial Lease, Factoring, Financing, and Savings Financing Companies Law.
• Capital Markets Law.
• Payment and Securities Settlement Systems, Payment Systems and Electronic Money Institutions Law.

Financial institutions are defined as legal entities engaged in financial activities, their branches, liaison offices, agencies, and national trust funds.

Participant Certificate is Required to Operate in the IFC

The IFM participants will be any of whom is defined as individuals and legal entities, who will operate in the office space by obtaining a participant certificate. Their branches and agencies, ordinary partnerships, liaison offices, regional management centres, and national trust funds will also be deemed to be as participants within the context of the law.

Any participant will have to obtain a participant certificate, which will enable the relevant participant to benefit from the related independent unit and shared spaces in the office space.

The terms and conditions for the issuance, suspension, and cancellation of such certificates will be regulated in the implementation regulation.

Operating Company

The IFM will have an operating company, which will be established as a joint stock company by the Turkish national trust fund. The operating company shall be subject to private legislation and authorized to implement the duties and authorities within the law for 20 years. Among such duties and authorities are operational and management of the whole infrastructure and superstructure, lease of independent units and areas. The operating company will also be authorized to conduct any operations related to roads, arenas, green areas, parks, and similar places except for publicly owned areas and those allocated to related institutions for public services in line with their functions determined in the development plan.

As mentioned above, the IFM will have two sections consisting of office space and an area outside the office space, which is named “outside area” in the law. The outside area will have a shopping mall, hotel, and similar places, which will be separated from the office space including independent units assigned for office use within the boundaries of the IFM. To use an office space in the IFM, a participant certificate must be obtained, which will be granted by the Turkish Presidency Finance Office.

One Stop Office

The law stipulates a unified service location called “one stop office”, where the relevant units of governmental authorities and agencies (e.g. Turkish Ministries of Labour and Social Security; Environment, Urbanization, and Climate Change; Treasury and Finance; Interior and if required, their affiliations, related, relevant agencies dependent thereon or monitored thereby etc.) commerce will serve. Thus, it is aimed to accelerate applications for authorizations, licenses, permits, and similar approvals of participants in relation to their activities. At the same time, the employees and their dependent persons of the participants will also be able to submit their applications to the one stop office for any permits or approvals related with the IFM.

The one stop office will be administered and managed by the Turkish Presidency Finance Office of which details will be determined in expected future implementation regulations.

Export of Financial Services

The law specifically stipulates the export of financial services. Accordingly, any provision of financial services to persons resident abroad by the financial institutions conducting financial activities with a participant certificate will be deemed to be exported financial services, provided that these financial services have been derived from outside the country.

Derivative transactions carried out by financial institutions on their own behalf and account, transactions of buying or selling assets from their portfolios, and activities, services and transactions that take the savings of domestic residents abroad are not considered as financial services export.

Exemptions and Discounts

Tax and other financial obligations exemptions and discounts granted to financial services export conducted in the IFM by financial institutions with participant certificates are determined in the law as follows:

• 75% of the earnings obtained within the scope of the activities are included in the corporate tax base by deducting the same from the corporate income if it is separately shown on the corporate tax return. This percentage shall be applied as 100% until 2031.
• Transactions and money received in favour of these transactions are exempt from banking and insurance transactions tax.
• Transactions related to activities are exempt from all kinds of fees, and the papers issued regarding these transactions are exempt from stamp tax.
• Head offices and branches of financial institutions with the IFM participant certificates shall not be charged with financial activities fees for a term of 5 years as of 2022, which are normally prescribed by the Turkish Charges Law No. 492. However, charges already incurred as of the effective date of this law shall not be waived and those that are already collected shall not be refunded.

Other Benefits

The actual nett value of monthly wages paid to personnel employed by the financial institutions in the IFM who has received the participant certificate are benefitted as follows; 60% of those who have at least five years professional experience abroad, and 80% of those who have at least ten years professional experience abroad will be exempted from income tax. This exemption shall be applied to salary earnings of personnel who has not worked in Turkey within the last 3 years prior to their commencement of work in the IFM.

Any lease of real properties in the IFM are exempted from charges and ancillary documents issued in relation to such transactions are exempted from stamp tax.

The above exemptions shall also be applied on the regional and financial head offices of participants operating actively in at least in three countries.

Common Rules

• The Turkish Treasury and Finance shall be authorized to promulgate rules to be applied to participants for keeping and issuing of books and documents in foreign currency regardless of the mandatory provisions of the Turkish Tax Procedural Law and Turkish Commercial Law.
• Any documents, contracts, correspondences, accounts, and books exchanged by participants amongst themselves or those issued by them in relation to their activities in the IFM shall be exempted from the rules of Turkish Law Nr. 805 on the Mandatory Use of the Turkish Language in Commercial Enterprises.
• The participants shall be entitled to freely choose the applicable law in any transactions and contracts subject to private legislation within the scope of activities conducted by the participants in the IFM amongst themselves if they are not against the legislation the participants are subject to.
• The above common rules shall also be applied on the regional and financial head offices of participants operating actively in at least three countries.

Employment of Foreign Personnel

Participants and the regional and financial head offices of participants operating actively in at least three countries shall be entitled to employ foreign personnel based on the work permit to be issued according to the Turkish International Workforce Law Nr. 6735 dated 28.07.2016 published by the Turkish Ministry of Labour and Social Security.

Immovable Properties in IFM

Immovable properties located in the IFM shall only be used in accordance with the objective determined in their project and management plans. In the IFM, the Turkish Ministry of Environment, Urbanization and Climate Change shall be authorized to do, get done and approve of any type of scale site plan, parcellation plan, land and land arrangement, geological and geotechnical survey, micro-zoning, map, and urban design projects.

Within the scope of the Property Ownership Law dated 23/6/1965 and numbered 634, the effects of the property owners’ board, the plot (island) representatives’ board and the construction common representatives’ board will be used by the Management Company for 20 years for the real estate the IFM.

The IFM management plan and advantage project shall be registered ipso iure by the operating company.

If the participant certificate shall be cancelled for any reason, the rent agreement of the participants entitling them to operate in the IFM shall be terminated automatically. If the rent agreement has been annotated by the IFM in the relevant land registry, such annotation will be removed by the operating company upon demand. Any evacuation of real properties which have been subject to the termination, falls under the provisions of The Turkish Law on the Prevention of the Intrusion on the Possession of Immovable Properties No. 3091.

ATAÜN LAW OFFICE